While the future is uncertain, there is nothing stopping you from planning for it. Do yourself and your family an enormous favor by learning about wills and trusts. Each serves a unique purpose in terms of planning for your family’s future. Let’s take a look at each and explore the differences between them so you have a better idea of which is best for your unique life situation.
What is a Trust?
A trust is best described as a legal arrangement in which an individual or an institution (the trustee) has legal title to another person’s property. There are two types of beneficiaries from trusts: those who receive income by way of the trust throughout their lives, and those who receive whatever funds remain after the initial beneficiary perishes. It is worth noting that a trust only covers property that has been moved into the trust. The property must be in the name of the trust in order for it to actually be included in that trust.
What is a Will?
A will is a legal document that explains how assets will be doled out to family and/or friends upon one’s death. It is important to note that a will does not account for property held in a trust or joint tenancy.
The Differences Between Wills and Trusts
While most people have heard of wills and trusts, a surprising number do not know the difference between the two. Each is a tool for estate planning, but they perform different functions. Estate planning attorneys tend to use them in unison to develop a comprehensive estate plan for their clients. One of the key differences between wills and trusts is that a trust is live and active as soon as it is created. A will only goes into effect when the person who creates it perishes.
There is another glaring difference between wills and trusts: a trust does not pass through probate while a will does. Therefore, a court is responsible for overseeing a will’s administration to verify its legitimacy and to ensure that property is passed on to the appropriate individuals. Since a trust does not involve probate, a court is not necessary to manage the process. The result is a significant saving of time, effort and money. The fact that wills pass through probate means that they are a component of the public record. Alternatively, a trust will remain private for as long as the parties involved desire.
Advantages and Disadvantages
There are all sorts of pros and cons to wills and trusts. A trust is an effective tool to save money on taxes and plan ahead for disability. A will is critically important as it allows parents to name guardians for their minor children, explains funeral requests and distributes property as desired. Be sure to meet with your elder law attorney to find out all the details to determine which of these two legal documents is best for your unique circumstances.